Trends in European insurance - profits will be hard-won
This extract is taken from 'PA Perspective on European Insurance' - edition 1, 2007. To download a PDF of the full article please click on the link seen on the right
Continued profitable double-digit growth is an ambitious aspiration in the insurance industry even in benign economic conditions: all the more so when there is pressure on margins across the industry.
Life and pensions providers can be bullish
Momentum is building for pensions reform across Europe, driven by the existence of large savings gaps and significant demographic changes. Broadly speaking, responsibility for retirement savings is passing from the state to employers and then to individuals; and defined-benefit schemes are giving way to defined-contribution programmes. For example, recent reforms in Germany have increased the retirement age and reduced benefits.
Customers are becoming more engaged and better educated, increasing the demand for insurance and savings products. Life insurers will have to respond.
Continuing economic stability and buoyant equity markets in particular are further fuelling growth. But there are a number of factors putting pressure on profit margins, including a renewed regulatory scrutiny, increased competition from substitutes, new entrants and declining customer persistency.
Life and pension players will therefore have to think innovatively to meet customers’ needs and increase shareholder value.
Non-life needs reinvention
Lower levels of claims, the low cost of capital and sound economic development have helped the European non-life market to grow profits over the past couple of years, but that trend is running out of steam. Growth is expected to slow in the coming year.
Pockets of opportunity remain: environmental changes, for example, create new market niches, and the economic strength of countries such as Germany provide scope for growth. Non-life needs to reinvent itself to renew customers’ interest and reinvigorate processes and products that are becoming increasingly tired. The key will be to think creatively, looking to improve the customer experience in critical areas such as claims management, and offering ancillary services that genuinely add value. This is an imperative for non-life companies.
The challenge ahead
The time has come for insurers to stop waiting for the market to grow on the back of the economy and government-led market reforms. Winning firms will think in terms of actively growing the market beyond its traditional boundaries and standing out from the crowd by creating genuine, sustainable differences in their businesses. There are four issues to tackle:
- Fixing the business model
- Capitalising on structural change
- Seeking new growth opportunities
- Gaining sustainable competitive advantage.
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